Opportunities for Australian Investors in the US$2 Trillion Market in Emerging Economies

3 May 2023
Australian institutional investors have an opportunity to collaborate more with the development sector on funding renewable energy in our region, according to new analysis from The Investor Group on Climate Change (IGCC).

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Emerging markets present a huge opportunity for investment, with estimates suggesting they could be worth US$2 trillion per year by 2026.  Many emerging markets must manage the dual challenge of decarbonising their electricity, transport and industrial systems while driving ongoing social and economic development. It presents a vast opportunity.

However, Australian super funds have been slow to invest in the region.

The new report, ‘Mobilising Climate Investment in Emerging Markets’, provides a clear picture of the opportunities and barriers for Australian investors, citing case studies from other OECD countries while offering solutions and recommendations. The report also incorporates the expert opinions of several large Australian investors who were interviewed regarding the barriers to investment in the region.

Addressing climate change in an orderly and just way is critical to protecting the future of investment returns. By investing in climate solutions in emerging markets, Australian super funds can deliver sustainable returns to their members and drive ongoing social and economic development.

The paper recommends:

  • The super sector improves collaboration with government sectors, such as the Department of Foreign Affairs and the climate finance sector.
  • Upskilling Australian institutional investors to become more experienced in the blended finance environment. Pooling resources together can create the right opportunities to invest in emerging market climate solutions.
  • Investment teams focus on increasing understanding of both risks and opportunities associated with climate and emerging market investing.
  • Australian government departments look to emulate the success of international financing initiatives from other developed countries, so that blended finance tools can be utilised to create an attractive risk-return profile for renewable energy in emerging markets.

Australia is making significant progress on its domestic climate policy; however increased policy certainty will continue to build a clearer path forward for investors looking to benefit from investment in climate solutions in emerging markets.

Investor Group on Climate Change Director of Investor Practice, Duncan Paterson said:

“Australian investors who see the $2 trillion climate solutions opportunity in emerging markets are going to have to build their skills and innovate.

“There’s plenty of scope for investors to collaborate in new ways with the government’s development agencies, for example structuring deals for blended finance and pooled assets.

“For global economic, social and environmental stability, emerging markets must decarbonise along with the developed world, and the smartest investors will realise that opportunity.”

Download the report